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Stocks in Focus: Land Securities

This week I am looking at the UK-based Real Estate Investment Company (REIT), Land Securities following the announcement that its Chief Executive, Robert Noel plans to retire next year. Mr Noel has been with the business for ten years, having spent eight of those at the helm during which Landsec developed several well-known buildings, including the 38-storey London skyscraper nicknamed “The Walkie-Talkie”. The board is currently searching for a successor to take over next year.

Mr Noel leaves at a difficult time for the property market in the UK. Retailers have struggled in recent years as customers continue to shift more towards online shopping, causing a decline in footfall to high streets and shopping centres. Subsequently, large retailers have been forced to reduce their store portfolios to allow for higher costs across the business. In addition, Brexit uncertainties have caused companies to hold off investment in larger projects over concerns of future demand.

As it currently stands, retail makes up c. 40% of Landsec’s property portfolio and contributed heavily to the fall in group asset value for the year to March 2019. In order to tackle these headwinds, Landsecs has committed itself to reducing the exposure to retail over the medium term. The intention is to then recycle the proceeds from these disposals into London office developments, recognising that the London office market is stronger than the company had previously anticipated.

These development projects will take time to deliver and are expected to contribute to earnings from 2023 onwards. In the meantime, management are taking sensible steps to reduce the risk of the portfolio whilst the strength of the balance sheet puts the company in a defensive position. Despite these efforts, shares continue to trade at a significant discount to Net Asset Value whilst market uncertainties surrounding a “no-deal Brexit” are likely to weigh on sentiment in the short term.

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